OECD Studies on SMEs and Entrepreneurship

Small and medium-sized enterprises (SMEs) and entrepreneurs are fundamental to innovation, economic growth and job creation, and play a critical role in social cohesion. This series provides a means for assessing and improving the performance, design and implementation of SME and entrepreneurship policies, and for sharing policy experiences among OECD member countries and partner economies. They are based on a standard methodology, including a diagnostic questionnaire completed by national authorities, study missions and fieldwork, and are peer reviewed by the OECD Working Party on SMEs and Entrepreneurship.

The spectacular success of several well-known new ventures in technological fields, which in little more than a decade have jumped from the state of start-ups to that of top international businesses, has pointed to innovation as a key factor in the high growth of firms. These high-growth enterprises often drive job creation and innovation, so policy makers are increasingly making such companies a key focus. Specifically, how can government policy foster the creation of more high-growth enterprises; what are the growth factors, and how can they be leveraged; what are the appropriate ways to provide such support?

To help answer these questions, this report presents findings from two new research studies: (1) reports from 15 countries (Australia, Brazil, Canada, Chile, Czech Republic, Finland, France, Italy, Japan, Mexico, Netherlands, Portugal, Spain, Switzerland and Tunisia) that provide interesting insights into the operations of and challenges faced by high-growth enterprises; (2) a policy survey by the OECD Working Party on SMEs and Entrepreneurship, which reviewed more than 340 programmes that policy makers in 24 countries have put in place to support the growth of enterprises.

Some of this report’s findings may surprise: any firm can be a growth company; growth is almost always a temporary phase; high-growth small firms are funded mostly by debt, not equity. These and many more insights are summarised and analysed, providing policy makers with ideas on how to power growth at the firm level.

This document presents the findings of a study carried out by the OECD Working Party on SMEs and Entrepreneurship (WPSMEE). It aimed at improving the knowledge of the links between growth and innovation factors in small and medium-sized enterprises (SMEs) in order to inform policy design.

At a time when policy makers are pooling efforts to restore growth and overcome the global economic and financial crisis, attention goes to those firms that by their extraordinary growth make the largest contribution to net job creation, despite typically representing a tiny proportion of the business population. These firms are called "highgrowth firms" or "high-impact firms" and play an important role in contributing to economic growth. The spectacular success of several well-known new ventures in technological fields, which in little more than a decade jumped from start-ups to top international businesses, has pointed to innovation as a key factor in the high growth of firms. With their presence in the economy considered promising for the creation of more jobs and innovation, interest in high-growth firms has risen among policy makers. The current policy debate is therefore focussing on the factors that can be leveraged and the appropriate policies, if any, needed to create more high-growth firms.

This chapter presents an overview of empirical literature on high-growth enterprises. It reviews findings on the relationship between innovation and fast growth as well as the factors affecting this relationship. The chapter also presents evidence on the activities and experiences of high-growth and innovative SMEs in accessing finance.

This chapter presents the results of empirical research conducted in 15 OECD and non- OECD countries to investigate the factors that drive high enterprise growth. The studies, carried out at the national level, analyse the role of innovation, business practices, networking activities, management of intellectual assets and access to finance, as determinants of high growth.

This chapter comments on the findings of a policy survey conducted during winter 2007- 2008 among OECD countries and observers to the OECD Working Party on SMEs and Entrepreneurship (WPSMEE) to collect information on government programmes that foster enterprise growth, in particular SMEs. 24 countries provided answers to the survey and reported information on a wide spectrum of policy initiatives aiming at enhancing growth and innovation in enterprises.

This chapter analyses six case studies of high growth and innovative SMEs in the service sector in three Latin American countries (Brazil, Chile and Mexico). The investigation addresses the five central themes studied in the overall HGSME project (i.e. innovation, business practices, networking patterns, financing and the use of intellectual assets). The authors found that there are some common traits influencing the success of the studied SMEs: business relationships with large firms; previous international experiences of the entrepreneurs; and knowledge customisation and adaptation of global businesses to local markets. The study also analyses the environment for entrepreneurship in Latin America, the main characteristics of dynamic entrepreneurship in the region, and puts forward policy recommendations.

This chapter analyses eleven case studies of innovative and high growth SMEs in Switzerland in various economic sectors. The authors find that a variety of elements impinge on the performance of the studied firms, namely the vision, experience and leadership of the firms’ managers; the innovative activities of the firm; business practices (e.g. in terms of market access, product quality, marketing activities, etc.); networking activities; the management and protection of intangible assets; and financing practices. The chapter also analyses the demographic characteristics of Swiss SMEs and their impact on employment.

Using descriptive, cluster and regression analysis of data from the EU Community Innovation Surveys, this chapter investigates the links between technological and nontechnological innovation activities and high growth in Czech SMEs in various economic sectors and for different types of firm ownership. The study finds that only certain types of innovation have some degree of impact on the fast growth of SMEs, with process innovation being the most significant influence on high growth, especially for mediumsized SMEs (50-149 employees). The analysis also reveals that there are no significant differences in factors of growth among different sectors and that fast growing SMEs tend to be more internationalised in terms of ownership and market orientation, although a clear causality link of foreign ownership and fast growth is not evidenced.

Based on econometric analysis of data drawn from a large business database and on interviews with eight HGSMEs, this chapter examines the interactions between firms’ business relationships (with both suppliers and customers) and growth performance (in terms of sales) in Japan. The authors found that three dimensions in transaction relationships have a positive effect on enterprise growth: the number of relationships; relationships with large or fast-growing firms; and geographic proximity to suppliers and customers. Both, the results from the econometric analysis and the findings derived from the case studies were consistent.

This chapter analyses the innovation activities and formal and informal methods of protection of intellectual assets used by a sample of high growth and non-high growth SMEs in manufacturing and service sectors in Finland. The authors find that there are no important differences between HGSMEs and non-HGSMEs in terms of innovative activities and that there is no significant relationship between the level of innovativeness and firm growth. In terms of intellectual asset management and protection methods their findings suggest that informal and formal methods are not mutually exclusive or competing but rather support each other and that HGSMEs appear more active using formal protection practices than non-HGSMEs. Regarding sectoral differences the authors find that protection strategies in the services sectors are mainly based on diffusing information among the firms’ employees and on documenting tacit knowledge whereas the manufacturing sectors base more their strategies on restricting employees’ access to sensitive information.

This chapter, which is based on an examination of empirical literature, analyses the financing of innovative and HGSMEs in France and presents the characteristics of French policies in this regard. It presents an estimation of the number of high growth and innovative SMEs in France based on figures from different sources. It assesses the role of financial constraints on innovation and stresses that when a firm faces difficulty to finance its innovative activities, other obstacles to innovate appeared to be magnified. The chapter also presents the function of different financing actors and instruments at different stages of the firm’s life cycle and underlines the role of proximity capital in filling the gap between demand and supply of financing. It finally puts forward a framework for policy.

This chapter is devoted to the analysis of the financing activities of innovative SMEs versus non-innovative SMEs in Canada. The study uses R&D expenditure as a proxy for innovativeness and is based on a descriptive analysis of data obtained from a database on demand and sources for financing. One of the main findings of the study is that innovative SMEs, as the rest of small firms, mainly resort to debt financing, but also that they recourse to other sources of funding such as equity in a higher proportion than other SMEs. It also found that innovative firms are less successful in obtaining the financing they request and that they face more stringent financing conditions in terms of higher interest rates and shorter loan terms.

Based on regression analysis of data obtained from a survey of companies inside and outside Italian industrial districts, this chapter has the double aim of investigating if the existence of lending relationships between banks and its borrowing firms contributes to the easing of financial constraints and if those constraints are more significant for innovative firms. The study concludes that stable and lasting lending relationships help financers to develop in-depth knowledge of a company and its competitive context and hence to have a more accurate assessment of investment choices. In this sense, financing constraints are weaker for businesses with at least one lending relationship. No evidence emerged to support the hypothesis that the banking system is sterner in its approach to innovative firms.